Exam 9: Derivatives: Futures, Options, and Swaps

A pension fund manager who plans on purchasing bonds in the future:

The user of a commodity who is trying to insure against the price of the commodity rising would:

What is a credit-default swap?

A lender obtains funds from depositors by offering short-term interest rates on savings accounts.The lender uses these funds to make longer-term installment loans.Explain how the lender might make use of the futures market to hedge the risk taken.

As the chapter points out, there have been many cases where derivatives have led to a lot of abuse.If this is the case, why do derivatives exist?

Suppose you purchase a put option to sell General Motors common stock at $80 per share in March.The current price of GM stock is $83 and the time value of the option is $1.What is the intrinsic value of the option?

Explain the popularity of options in the sense of the potential gains and losses they offer.

What are the three main ways to categorize derivatives?

An individual who neither uses nor produces a commodity but buys a futures contract for the asset is:

As an option approaches its expiration date, the value of the option approaches:

There's a call option written for 100 shares of GM stock for $85.00 a share, prior to the third Friday of October 2006: The option writer:

With a call option that is described as in the money:

Options are popular because of all of the following EXCEPT:

An investor who purchases a call option is:

Tom buys a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is lower than Tom expected.Tom will have:

Sue sells a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is lower than Sue expected.Sue will have:

If we have a stock selling for $95.00 and a call option for this stock has a strike price of $82.00 and an option price of $13.60:

Explain how the clearing corporation reduces the risk it faces in the futures market through the use of margin accounts and marking-to-market.

The right to buy a given quantity of an underlying asset at a predetermined price on or before a specific date is called a(n):

Sue buys a futures contract for U.S.Treasury bonds and on the settlement date the interest rate on U.S.Treasury bonds is higher than Sue expected.Sue will have: